Monday, November 22, 2010


We're in an uncommon market that's dominated by a handful of stocks.

Time to short?

Breadth and financials stunk up the joint.

The FBI Lowers the Boom

The FBI's investigation of insider trading is far-reaching.


The FBI raids are starting to feel like the movie The Godfather when Michael Corleone kills all his enemies in one fell swoop!

Hedge fund Loch Capital has now been raided.

The insider allegations are likely to be far-reaching and market-impactful.


According to Bloomberg, the FBI has raided two hedge funds whose general partners were formerly affiliated with SAC.

Continued weak action of the financials.

The market advance is again narrowing, with the high-octane, high-beta and high-growth names leading the way.

It's almost too predictable and probably not too healthy.

A market with no memory from night to morning!

Last night S&P futures advanced by over 10 points; at the opening they are down by 6 points.

A 16-point drop on no news.

Get used to it!

Update Your iPhone

Apple will announce a free iPhone software update this morning.

The view that stocks will go up because of seasonal strength late in the year is not rigorous.

If it was that easy, kids would be doing it.

Stated simply.

Inside Heist

The weekend was filled with chatter regarding a vast insider-trading probe.

This is may very well be a big deal.

Insider-trading charges expand. The SEC alleges, in a broad-ranging sting, the existence of extensive exchange of information that goes well beyond Galleon's Silicon Valley executive connections. Several well-known long-only mutual funds are implicated in the sting, which reveals that they have consistently received privileged information from some of the largest public companies over the past decade.

-- Doug Kass, "20 Surprises for 2010" (surprise No. 13)

Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders, and analysts across the nation, according to people familiar with the matter. The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.

-- Saturday's Wall Street Journal report

I believe that the soon-to-be-announced insider-trading indictments will be far-reaching and could even have the potential to be market-impactful, as the allegations will not only include some of the most prestigious hedge funds but will also allegations against some of the largest and most conservative mutual-fund companies, investment bankers and law firms.

In other words, this is may very well be a big deal.

Up till now, the SEC has been asleep on many counts. Here are a few obvious examples:

* The SEC dismissed multiple complaints and internal regularities in the Madoff case.

* Takeovers are routinely preceded by strength in the shares of target companies.

* High-frequency-trading strategies buy (and see) order flow before they get executed.

* Monthly, quarterly and yearly share price markups are common place and are generally ignored.

* There have been limited prosecutable actions by many of those companies/executives that sold stock with knowledge of deteriorating finances. (The most conspicuous example of this sort of abuse, at Countrywide Financial, was punished with a fine that was dwarfed by what the chairman took out of the company).

* Arguably, Sarbanes-Oxley was ignored by many financial institutions that obscured their true health through structured investment vehicles and other accounting devices -- yet there have been few indictments.

Stated simply, I say lock all the assholes up, as the playing field has been uneven for some time, from my perch.

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